The largest oil supply loss in history happened and markets shrugged because NVIDIA reports Wednesday · Daily Briefing

In 30 seconds: The closure of the Strait of Hormuz amid the Iran conflict has triggered the largest weekly crude inventory draw in recorded history, with markets debating whether the strait will reopen soon and the UAE accelerating a bypass pipeline. Markets are closely watching NVIDIA's upcoming earnings report, with options markets pricing a ~5% implied move and call skew at the 100th percentile, while cybersecurity and AI-adjacent software stocks have already surged sharply. A new Setser-Tordoir paper argues China's undervalued currency and exploding auto exports have become the primary drag on German growth, calling for a European '301' trade instrument targeting Chinese currency policy. The April Fed minutes revealed a majority of policymakers open to rate hikes if inflation persists above 2%, striking a more hawkish tone than the post-meeting press conference had implied.

The numbers are now genuinely historic. US total crude inventories, commercial and strategic reserve combined, fell 17.8 million barrels on the week — the largest weekly fall since data is available starting in 1982. Broader US petroleum stocks, including products, dropped 18.9 million barrels over the same period. This has been characterized as the largest supply loss in the history of the oil industry. Gasoline and diesel stocks are poking below the bottom of their trailing seasonal lows. And yet the prevailing trade, apparently, is that this all resolves itself. The consensus view among fund managers is that the Strait will open in a few weeks and that oil prices will collapse. Market participants truly believe that any day now, the Strait opens, the oil starts flowing, and this war is over and soon forgotten. The asymmetry of professional embarrassment, rather than the asymmetry of physical barrels, is doing the work. The problem with the "few weeks" thesis is that barrels do not care about consensus. UAE oil pipeline bypassing the Strait of Hormuz: 50%. The inventory data has not yet convinced markets to abandon that view.

Jensen Huang made a statement about AI eating software. Call skew sits at the 100th percentile while put skew sits at the 0th percentile — as lopsided a setup as the options market can produce. NVDA call skew percentile: 100 %'ile. NVDA put skew percentile: 0%. Read that again: the options surface is as tilted toward upside as it has ever been, and as indifferent to downside as it has ever been. Implied volatility is high — even relative to prior earnings, which is saying something. The polite way to describe this positioning is that it is a very crowded trade. Dealer gamma positioning shows NVDA well supported below 220 into 200, but flips to negative gamma from 230 into 250. NVDA implied ER move price target: 230. Meanwhile, cybersecurity stocks have been caught up in the AI Doom trade because they're lumped with software.

A new paper argues that the China shock is now the most important cause of Germany's malaise – even if it is the one Berlin remains least willing to confront. The thesis is straightforward: the real RMB is still down a lot versus 4-5 years ago — the USD included — and that depreciation in real terms in 2022/23 led to export outperformance in 2024/25, exactly as a standard model would predict. Recent data do not challenge the IMF estimate that a 10% move in the real effective exchange rate translates to roughly 1.5 percentage points on net exports over two to three years. Germany has lost close to 5 pp in growth from net exports — the most in the G-7 by a mile. Net exports have been a massive drag on German growth in the years after the pandemic, and the mechanism is not mysterious: an undervalued Chinese currency propelled Chinese exports to grow much faster than global trade. Auto trade, including parts trade, sits at the center of the collision because it has historically been very exchange rate sensitive. The scale of China's auto overcapacity — roughly 25 million cars beyond domestic demand — makes the problem hard to dismiss as temporary. With Chinese internal demand for EVs cresting, China could in principle now meet all global EV demand. China's auto export wave picked up steam.

The Federal Reserve released minutes from its April meeting. The key sentence: A majority of participants highlighted… that some policy firming would likely become appropriate if inflation were to continue to run persistently above 2%. For much of the period from mid-2022 to 2025, the story was that inflation, which was moderating, would continue to moderate. If you are no longer biased toward easing, you are, by definition, biased toward something else. A growing number of members signaled more openness to interest rate hikes, and the minutes make that openness legible. The minutes themselves do the talking — a more hawkish tone than the press conference suggested, a growing number of members open to rate hikes, and "many" signaling a preference for ditching the easing bias.